Rental Travel Expenses: Business Or Personal?

Rental-related travel expenses can be claimed as business expenses, but there are rules to follow to avoid unwanted attention from the IRS. Travel expenses are the ordinary and necessary costs of travelling away from home for your business, profession, or job. They are among the most common business expense deductions but also one of the most confusing and abused. To be deductible, your travel must be primarily for your rental activity, and you must be able to show that it benefits your business.

Travel expenses must be ordinary and necessary

Other deductible expenses include:

• Local transportation costs, such as taxi fares or other transportation between the airport or station and a hotel, or from one customer to another.
• Lodging expenses on overnight stays required for sleep or rest.
• Business meals outside of your tax home, which are typically 50% tax-deductible.
• Communication expenses, such as telephone or fax charges related to your business during your trip.
• Tips paid in association with any of the above expenses.

It's important to note that not all expenses are 100% deductible. For example, as of 2023, travel-related meals are only 50% deductible. Additionally, expenses that are deemed unreasonable, lavish, or extravagant are not deductible. This includes personal expenses or expenditures that are not directly related to the conduct of your business.

Travel must be for business purposes

For rental-related travel expenses to be tax-deductible, the travel must be for business purposes. This means that the trip must be primarily for your rental activity. You must have a rental purpose in mind before starting out, and you must carry out tasks related to your rental activity while you're away.

Examples of rental business purposes include:

• Traveling to your rental property to deal with tenants, maintenance, repairs, or improvements
• Traveling to building supply stores or other places to obtain materials and supplies for your rental activity
• Traveling to your rental property to show it to prospective tenants
• Learning new skills to help in your rental activity, by attending landlord-related classes, seminars, conventions, or trade shows
• Traveling to see professionals, such as real estate brokers, attorneys, or CPAs, who help you with your business

Rental-related activities do not include recreational activities attended by yourself, family, or friends, or personal investment seminars or political events.

If you are audited, the IRS is likely to question any trip that doesn't have a logical connection to your rental activity.

Travel expenses for new markets

If your rental activities rise above the level of "investor", then travel costs to look for properties fall into two categories:

• Expenses incurred to look at properties you purchase
• Expenses incurred to look at properties you don't purchase

Expenses incurred to look at the property you ultimately acquire will be added to the basis and depreciated over 27.5 years. Expenses incurred to look at a property in a geographic location in which you already operate as a landlord are fully deductible, assuming they are ordinary and necessary for the conduct of your landlord business. Expenses incurred to look at a property in a geographic location in which you do not already operate as a landlord are considered business start-up expenses and are only deductible after you have purchased your first property in the new market.

As with other expenses, travel must be ordinary and necessary. Travel expenses incurred to evaluate a property in a new market in which you don't eventually purchase a property are not immediately deductible. These are considered start-up expenses that can only be deducted after purchasing your first property in the new geographic area.

When travelling to new markets, you can deduct the following expenses:

• Transportation to and from the business destination, including train and bus tickets, airfare, and car expenses
• Other transportation costs, including expenses for travel to and from the airport, and from the lodging area to the business location
• Lodging expenses on overnight stays required for sleep or rest
• Business meals outside of your tax home, which are 50% tax deductible
• Other ordinary and necessary business travel expenses

Deductible expenses

When it comes to deductible expenses for rental-related travel, there are a few key things to keep in mind. Firstly, the Internal Revenue Service (IRS) only allows you to deduct expenses that are considered "ordinary and necessary". This means that the expenses must be common and accepted within the trade or business, as well as helpful and appropriate. Secondly, you can only deduct travel expenses directly related to your rental property. For example, if you drive to your rental property to carry out repairs, you can deduct the cost of gas, but if you meet friends for lunch after, that expense would not be deductible. Finally, you can only deduct travel expenses that you actually incur.

With those points in mind, here are some specific examples of deductible expenses for rental-related travel:

• Transportation costs: This includes airfare, bus or train tickets, car rentals, and mileage on your personal vehicle. If you use your personal vehicle, you can deduct the actual expenses (such as fuel and maintenance) or use the standard mileage deduction.
• Lodging expenses: The cost of hotels, motels, or other accommodations during overnight stays required for sleep or rest are deductible.
• Meals: As of 2023, travel-related meals are only 50% deductible.
• Baggage and shipping costs: You can deduct the cost of shipping baggage or other items needed for your rental property business.
• Communication expenses: Telephone, internet, and fax charges related to your business during your trip are deductible.
• Laundry and dry cleaning: Fees for laundry and dry cleaning services incurred during your trip can be deducted.
• Tips: You can deduct tips paid in association with any of the above expenses.
• Other necessary expenses: Other ordinary and necessary expenses related to your business travel may also be deductible. For example, travel to and from a business meal, notary fees, or long-term housing costs.

It's important to note that if you mix business travel with personal travel, some expenses may still be deductible as long as the trip was primarily for business purposes. Generally, this means spending more than half of the total number of days on business activities. Lodging, meals, and other expenses incurred during days dedicated primarily to non-business purposes are not tax-deductible. Additionally, travel expenses for a spouse, partner, or dependent are not deductible unless they are travelling for a legitimate business reason.

When deducting rental-related travel expenses, it's crucial to maintain proper records and documentation to support your deductions. This includes items such as an account book, diary, log, expense statement, trip sheet, receipts, cancelled checks, and invoices.

Mixing business with pleasure

When it comes to rental-related travel expenses, there are a few things to keep in mind if you plan on mixing business with pleasure. Firstly, the primary purpose of the trip must be for business for travel expenses to be tax-deductible. This means that if you spend more than half of your trip on personal activities, you cannot deduct any of your travel costs. However, if the business portion of your trip is greater than the personal portion, you may be able to deduct some of your expenses. For example, transportation costs to and from the business destination, including airfare, bus or train tickets, mileage on your personal vehicle, and taxi or rideshare costs are generally deductible for the business portion of your trip. Lodging and meal expenses during the business portion of your trip may also be partially deductible, but be sure to check the specific rules for your location.

It's important to keep detailed records of your trips, including the dates, locations, purposes, and costs of your travels. This will help you substantiate any deductions you claim. Additionally, be sure to review the specific rules and regulations for your location, as they can vary. For example, in the United States, the Internal Revenue Service (IRS) has specific guidelines for what qualifies as a business trip and what expenses are deductible.

Overall, mixing business with pleasure can be a great way to get some extra vacation time, but it's important to plan carefully and understand the tax implications to ensure you're compliant with the relevant regulations.

Frequently asked questions